Celebrities make boatloads of money, yet many of them manage to blow it all or lose it all, either to their own excesses or because they get duped by the very people they trust. Whichever the case, a celebrity financial advisor can help celebs with business and financial issues such as cash flow management, tour budgeting and tracking, accounts receivable and payable, tax reduction strategies, domestic and international tax preparation and filings, wealth generation through investment counseling and management, and related tasks. With the right team by your side, celebrities and high net worth individuals can free themselves of operational and mundane to-dos, and focus their energies on whatever it is that they do best.

(In)Famous Celebrity Financial Flameouts

The headlines of the publications from Billboard to The Washington Post often feature high profile celebrity financial failures.  Musicians who were once at the top of the income pyramid, but spent their money frivolously; actors who earned more in a year than most people do in their whole lives filing for bankruptcy due to poor investment choices; athletes who have spent far too much on depreciating assets and are later left to sell them at pennies on the dollar just to reclaim some cash.

In many cases, celebrities don’t understand finance and taxes and go overboard with their spending. In essence, victims of their own excesses goaded on by associates, and unchecked (or unwilling to be checked) by friends and advisors.  There is a perceived need to continually display wealth outwardly which oftentimes urges people to make choices that do not build long term wealth and value.

Top Celebrity Investors

On the flip side, there are many inspiring stories of actors, singers, media personalities, artists, and performers who have used celebrity financial advisors to their benefit and turned early financial gains into mini-fortunes through sound advice, prudent spending, and wise investing. 

It is easy to justify excessive spending habits when musicians, actors, athletes and other celebrities are at the height of their earning capability.  But the more difficult problem is structuring spending to save for the later years in life, when earning capability may decrease. Further, it is important that celebrities make wise investments that will serve them for a lifetime. 

Get A Good Financial Advisor At The Outset

When you’re early in the game, you need someone who can protect you, watch out for your best interests, promote you, take you on the road, keep track of all your expenses, handle royalty rights and negotiations, help you set up merchandising or endorsement deals, and map your cash flow.

Cash Flow Management

Consider cash flow management. A good celebrity financial advisor can make sure your contracts protect you, that your royalties are structured in line with industry norms, and that you’re not taken for a ride because you’ve got an inexperienced person, such as a parent, managing your affairs. 

Cash flow management covers cash (including electronic cash) flowing in and flowing out. Cash flow management is key to making sure you have enough money to run the business and sustain your lifestyle at all times.

Cash inflows could come from a variety of sources such as record deals, acting contracts, professional sports contracts, touring contracts, social media endorsements, product merchandising (such as CDs, online music downloads, or t-shirts and caps bearing your likeness), licensing your intellectual property, etc.

Cash outflows cover all of your expenses – limo rentals, flight tickets, hotel stays, staff expenses, office expenses, and other necessary expenses to cover your day to day life and work needs. 

Tour Budgeting and Accounting

For instance, if you hit the road, a good celebrity financial advisor will make sure you have a tour budget before you set out, will track all your revenue inflows and expense outflows through the tour, and settle accounts in the weeks and months after the tour has concluded.

On tour, you’ll have revenue coming in from various sources but will also have expenses flowing out to make the tour happen. These inflows and outflows largely consist of invoices you submit for money owed to you and invoices you receive for money owed by you. 

A good financial advisor will seamlessly take care of your billing, invoicing, collections, and payments. Collectively, your Accounts Receivable and Accounts Payable, and will follow-up to make sure you are paid on time, and that you also pay your bills on time.

Investment Advisory

A responsible financial advisor will also develop a financial plan, so your revenues are always greater than your expenses, and so your cash inflows are always greater than your cash outflows, and that your debts are manageable and serviced on time. This will ensure that you never run out of cash and, indeed, have enough left over to save and invest. 

A good financial advisor will assess your age, income and other factors, and put your money to work through diversified investments such as retirement accounts, 529 plans, tax-saving investments, stocks, bonds, mutual funds, ETFs, real estate, maybe even art and other alternative investments. 

Your advisor will manage your investments at all times, so your wealth grows year on year through the magic of compounding, and is protected through severe stock market downturns like the near 30% drop in mid-March 2020 over the COVID-19 crisis.

Tax Reduction Strategies and Tax Filings

Celebrities are high on the tax man’s audit radar. If you’re a high earner, you’ve got to be extra careful, and need a celebrity financial advisor who has significant experience with tax planning and filing complicated taxes.

Once the money starts coming in, a good financial advisor can help you with smart and legal tax-saving vehicles, so you minimize your taxes, and set you up with holding companies and trusts, so your assets are safe. For instance, if you get sued, or go to your loved ones without the heavy costs of probate (as much as 35%) should something happen to you.

The IRS requires that you declare every dollar of your income. If you’ve got a broad range of business interests – speaking or appearance engagements, gigs, endorsements, royalties, international tours or movies, etc. – it’s easy to lose track of your revenues, and innocently underreport your income. But that’s no excuse when it comes to filing your taxes.

You need someone who is diligent about tracking and reporting absolutely all of the money you make, including your investments, and reducing your tax bill by reporting all your tax-deductible expenses. 

You also need someone who has the expertise to file complicated taxes, in multiple states, and perhaps in multiple countries if your work takes you abroad. 

If done right, a good celebrity financial advisor can literally save you millions in taxes each year!

The SEC’s Definition of a Fiduciary

The bottom line is simple. If you’re raking in the millions, you simply cannot have an inexperienced parent or ill-qualified brother-in-law handle your finances. You need a responsible celebrity financial manager who acts in a fiduciary capacity to serve your best interests.

The Securities and Exchange Commission defined a fiduciary as someone who:

• Has a Duty of Care and gives you investment advice that is in your best interests, based on your investment objectives; and
• Has a Duty of Loyalty to eliminate (or make full disclosure of) all conflicts of interest which might incline an investment adviser to render advice which is not in your best interests.

How To Choose A Good Advisor

While there are many “celebrity financial advisors” out there, most aren’t set up to comprehensively serve the full spectrum of a celebrity’s needs. For example, you may have a bookkeeper or a CPA who purports to offer everything you need but is really ill-equipped even to handle your tax returns properly, let alone advise you on tax efficiency, contracts, royalties, tour management, etc.

High net worth individuals must look for a deeply experienced, one-stop fiduciary celebrity financial advisor who offers a comprehensive suite of business, financial, and investment management services. 

Once you have a shortlist of fiduciary advisors, ask for client portfolios, ask for examples on how they dealt with difficult situations, grill them on how they created value for clients, ask for references, and take the time to really dig into the references they provide. Also, check their reputation online and with the Better Business Bureau. Then sign them up for a short-term engagement, perhaps a specific project such as a royalty negotiation, to see how well you gel with their team.

In the celeb business, personalities can get prickly, so make sure you meet everyone you will be interacting with and only sign-on with an advisory team that you are 100% comfortable with. That said, also make sure they aren’t yes-men but are tough and willing to take a stance to give you the advice you may not want to hear.

Final Thoughts

Keep Your Eye On The Ball

Even the best of celebrity financial advisors need oversight. Ergo, it’s absolutely vital that there be a system of checks and balances, with you – the celeb – actively involved in understanding your revenues, expenses, tax obligations, savings, and investments. 

Where managers and advisors know the celeb has no clue or no interest in watching the hen house, they are more likely to raid it. Ultimately, the onus lies with the celebrities themselves on making sure their business and finances are prudently managed.

Until next time.